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How Sustainable is E-Commerce in India?
Thu, 29 Dec Pre-Open

What started as 'buy books online' has today become 'buy everything online'. The emergence of e-commerce has certainly made life convenient, at the cost of disrupting offline business.

With only 35 million online shoppers in India, it doesn't seem to have penetrated very deeply. But we must still ask: What is driving e-commerce in India?

Is it the convenience of getting things at your doorstep? Or the heavy discounts?

The Indian e-commerce business is going through a dream run. One of the key reason is the price differential between online and offline.

The group of 14 companies which include e-tailers, furniture sellers, travel portals, food ordering and delivery players reported an increase of 138% YoY losses. 70% of this loss was shared by Amazon, Flipkart and Paytm.

Heavy discounts, employee costs and advertising probably account for a vast majority of these losses. In their zeal to gain market share Amazon India reported the exorbitant advertising expenditure of Rs 21,630 million for FY16. Paytm, with a 4x increase in losses, spent Rs 11,150 million. Flipkart had the lowest among these with Rs 9,230 million.

Unsustainable losses. After the drawdown in the Flipkart valuations, funding from private equity players and venture capitalists has slowed down. Between April to November, the funding was down 72% YoY.

This is bad news for Indian e-commerce startups. The increasing losses on one hand, and the slowdown in funding on the other, may lead to consolidation in the market. Global players like Amazon with the capacity to suffer could benefit from this.

Only time will tell how the consolidation takes place. So far the growth in e-commerce could be attributed to steep discounts. It would be interesting to see how things turns out when the consolidation takes place, and pricing strategies normalize.

That said, the demonetisation and digitisation drive bodes well for the e-commerce industry in India. The government's focus on a cashless economy and internet banking paints a better picture for e-commerce players.

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